Higher energy costs and external pressures add to Pakistan’s economic challenges as IMF revises inflation and current-account deficit estimates

Islamabad/Washington, October 13 (Nazrana Times): The International Monetary Fund (IMF) has raised its inflation forecast for Pakistan to 9.9 percent for the current fiscal year while maintaining its economic growth projection at 3.5 percent, according to figures attributed to the Fund’s latest World Economic Outlook report released on Tuesday.

The revised inflation forecast represents an increase of 1.5 percentage points from the IMF’s earlier estimate of 8.4 percent in July. It also stands above the Pakistani government’s annual inflation target of 8.2 percent, indicating that controlling consumer prices could remain a significant challenge in the months ahead.

Current-Account Deficit Expected to Widen

The IMF has also reportedly revised Pakistan’s current-account deficit forecast to 1.0 percent of gross domestic product (GDP), equivalent to approximately $4.4 billion.

The updated estimate is around $450 million higher than previously projected, suggesting additional pressure on the country’s external financial position.

Rising international energy prices, continuing geopolitical tensions and disruptions affecting shipping routes through the Persian Gulf have been identified as major factors behind the revised outlook.

Higher fuel import costs could place further pressure on Pakistan’s foreign exchange requirements while complicating efforts by the State Bank of Pakistan to maintain price stability.

IMF Maintains 3.5% Growth Forecast

Despite the upward revision in inflation, the IMF has kept Pakistan’s real GDP growth forecast unchanged at 3.5 percent.

Pakistani authorities have presented a more optimistic assessment of the economy during recent discussions under the IMF-supported programme, pointing to improving industrial activity and ongoing economic reforms.

Finance Minister Muhammad Aurangzeb has expressed confidence that economic growth could exceed 4 percent during the fiscal year, supported by industrial recovery, investment and progress on privatisation.

However, the IMF’s unchanged projection indicates a more cautious assessment of the pace of economic recovery.

Fuel Relief Measures Draw IMF Concerns

Differences have also emerged between the government and the IMF over measures introduced to reduce the impact of rising fuel prices on consumers.

While higher international petroleum costs have been reflected in domestic retail prices, the government has introduced a monthly cash compensation scheme offering Rs 2,000 to motorcyclists and Rs 3,000 to owners of small cars.

According to the reported details of programme discussions, the IMF has raised objections to the scheme, citing concerns about its financial cost, targeting of beneficiaries and compatibility with Pakistan’s fiscal consolidation commitments.

The issue highlights the challenge facing policymakers as they attempt to provide relief to households while meeting spending and budgetary targets under the IMF programme.

Next IMF Review Expected in November

A detailed IMF staff report is expected to be completed ahead of a tentative Executive Board meeting in late November, when the release of the next loan instalment could come under consideration.

The review is expected to examine Pakistan’s progress on fiscal management, economic reforms and commitments made under the existing financial assistance programme.

The latest projections, if confirmed, would underline the difficult balance facing Pakistan’s economy between controlling inflation, supporting economic growth and managing external financial pressures.

With international energy markets remaining uncertain, developments in global oil prices and domestic economic policy are likely to play an important role in shaping the country’s financial outlook.